Stocks took their biggest one-day tumble in five months on Wednesday, the day after Americans re-elected Barack Obama to a second term as President.
The Dow Jones industrial average closed at 12,932.73, down 312.95 points or 2.4 per cent. The broader S&P 500 closed at 1394.53, down 33.86 points or 2.4 per cent – marking its biggest decline since the start of June. In Canada, the S&P/TSX composite index closed at 12,230.59, down 130.61 points or 1.1 per cent.
The dip follows U.S. election results from Tuesday night, which handed Barack Obama a second term in the White House, along with proposals for higher taxes and greater industry regulation.
But results also ensured ongoing political gridlock in Washington with Republicans maintaining control of the House – widely seen by market watchers as the worst-case scenario for stocks because it makes the upcoming fiscal cliff much more dangerous.
Mr. Obama must negotiate with Congress to avert automatic tax increases and spending cuts next year, a toxic mix that could shave up to 5 per cent from U.S. gross domestic product.
However, the election results were hardly a surprise. Some polls had shown a tight race, but various other indicators had been pointing to a Democratic victory in the White House and Senate.
U.S. financial stocks were by far the hardest hit stocks within the 30-member Dow, suggesting that investors were nervous about a government backlash against the sector after Wall Street heavily favoured the Republicans in the election. Bank of America Corp. fell 7.1 per cent and JPMorgan Chase & Co. fell 5.5 per cent.
Apple Inc. fell 4.3 per cent, bringing its overall decline from its record high in September to nearly 21 per cent – the loose definition of a bear market decline. While there are concerns about the company’s ability to compete within the increasingly competitive tablet market, the latest decline might be election related: Mr. Obama favours a minimum tax on corporate financial assets held overseas – and Apple holds a bundle.
However, firearm stocks rallied on the premise that Mr. Obama could reintroduce a proposal to ban some gun purchases by civilians. Smith & Wesson Holding Corp. rose 9.6 per cent and Sturm Ruger & Co. rose 5.9 per cent.
Commodities were hit. Gold fell to $1,714 (U.S.), down $1 after erasing a gain earlier in the session. Crude oil fell to $84.44 a barrel, down $4.27, hitting its lowest level since July and marking its biggest decline in nearly a year.
Among Canadian commodity producers, Suncor Energy Inc. fell 2.7 per cent but Barrick Gold Corp. rose 2.5 per cent.